US takes India off currency watchlisthttps://indianexpress.com/article/india/united-states-india-currency-watch-donald-trump-5755396/

US takes India off currency watchlist

Over the last two years, US put pressure on India by increasing tariffs on products like steel and aluminium,as well as removing the country from its Generalized System of Preferences, which allowed Indian businesses certain trade benefits.

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India has been removed from the list for “addressing” some of the Trump administration’s concerns over its currency practices and macroeconomic policies. (REUTERS/File)

The US government Wednesday removed India from its list of major trading partners to be closely monitored for potentially questionable foreign exchange policies with the move coming amid escalating trade tensions between the two countries.

India has been removed from the list for “addressing” some of the Trump administration’s concerns over its currency practices and macroeconomic policies, according to the Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States report released by the US Treasury department Wednesday. According to it, the only factor of concern from India is its “significant” bilateral trade surplus with the US, which crosses the country’s maximum limit of $20 billion.

The US includes major trading partners in its monitoring list if they meet at least two of three criteria – if it has either a significant bilateral trade surplus with the US, if it has a material current account surplus or if it is engaged in “persistent one-sided intervention” in the foreign exchange market.

Explained

May signal thaw in trade tension

Currency policy has been used by the Trump administration as a tool in trade talks. This move is based on quantifiable criteria but it signals a possible de-escalation in India-US trade tension. US has been holding off on notifying the withdrawal of trade benefits to India despite the expiry of its notice period, possibly in the hope that the new government will defuse the standoff.

India was included in the list over a year ago because, in 2017, its foreign exchange purchases over the first three quarters of the year pushed net purchases of forex above 2 per cent of GDP. It also had a trade surplus of over $20 billion.

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“After purchasing foreign exchange on net in 2017, the central bank steadily sold reserves for most of 2018, with net sales of foreign exchange reaching 1.7 per cent of GDP over the year. India maintains ample reserves according to IMF metrics for reserve adequacy,” it stated.

Once on the list, the country remains there for at least two consecutive reports, which span at least a year, “to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors,” stated the report.

Countries in the current list include China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia and Vietnam. However, the US has not specifically called out China for currency manipulation which is seen as a positive signal amid escalating US-China trade tensions.

Subsequent to India being included in the list last year, in October 2018, the US Treasury department noted that India’s circumstances had shifted “markedly”, with the central bank’s net sales of foreign exchange over the first six months of that year had led net purchases over the four quarters through June 2018 to fall to $4 billion, or 0.2 per cent of the US GDP. India had a bilateral goods trade surplus with the United States totaling $23 billion over the four quarters through June 2018 but its current account was in deficit at 1.9 per cent of GDP, the Treasury department had said then.

Over the last two years, US put pressure on India by increasing tariffs on products like steel and aluminium,as well as removing the country from its Generalized System of Preferences, which allowed Indian businesses certain trade benefits.

India has attempted to reduce its trade surplus with the US with then Commerce Minister Suresh Prabhu stating earlier this month that purchasing India’s imports of larger products like aircraft from US companies like Boeing could help offset it going forward. “One should see this in a positive light. At least on one front, India can be reassured that it will not be targeted with unilateral measures over currency issues,” said JNU Centre for Economic Studies and Planning professor Biswajit Dhar.

“The US has been talking about gearing up to target countries which have been manipulating currencies. What countries can expect from being included in this list is some kind of trade retaliation by way of measures like higher tariffs,” he said. But since India still has a trade surplus with the US, the Trump administration may continue to target it with “other forms of retaliation”, he said.